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Investors Should Take Position on Low Price
- By Business World
- Published January 18th, 2010
- Smartmoney
- Unrated
IN continuation of the review of the performance of the Nigerian capital market for the year ended 2009, last week we reviewed the stocks that have performed well over and above the market expectations. This week we will look at those stocks that have performed worse below the market standards.
It would be recalled that the market from January 2009 to 1 December 2009, the entire All Share Index lost approximately 34 per cent. What this means is that those stocks that have lost 34 per cent in their price have also moved along with the trend of the market. But don’t forget some of the stocks have performed worse below the market. Over 50 per cent of the stocks have performed worse than the market. Today we want investors to look at these companies. We have some companies that have lost as much as 90 per cent or 80 per cent. If you check a stock like Equity Assurance, it lost almost 90 per cent. When you look at a stock like Fin Bank, Union Bank, Oceanic Bank, Intercontinental Bank, Eterna Oil, Daar Communications, MTI, Law Union, all these lost more than 80 per cent.
When the market lost only 34 per cent, they lost more than twice of the loss of the market. Similarly, some other stocks like Afribank, Unity Bank, International Energy, even Mobil and other stocks like Chams, Livestock, Union Homes, Crusader Insurance all lost above 70 per cent. That is still more than twice the loss of the market.
What we are advising the investors to do is that they should look at those stocks that have lost severely more than what the market lost and find out, the common denominators for those stocks. One thing that is common to most of the stocks that have lost is except maybe for the oil company, that majority of them they have large chunk of issued share capital. And because they have large chunk of issued share capital most of the investors were just selling more than what the market can take at any given time, and these stocks have to go down.
The same thing, one of the characteristics of these stocks have to do with most of those banks that were examined by CBN and the NDIC, qualified as the eight banks that the CBN had taken over.
Because of the size and because of the utterance of the regulatory authority, it brought panic to the investors and a lot of them were selling their stocks without looking at the repercussion.
We now advise the investor to identify these stocks that were severely lost. Not because they were not performing but they do so just out of sheer panic and invest heavily.
Today there is no doubt , anybody that invested in Dangote Flour Mills which was a s low as N4.71 around November, December today is over N14 and what does that mean?. It shows that the investor that have looked at this stock and invested have nothing to regret. Because the investor must have seen that this is a company that is well diversified.
Today we are talking of Dangote Flour Lagos, Dangote Flour Ilorin, Dangote Flour Kano and Dangote Flour Calabar, and they all not only rely on the Flour, they go into Macaroni and Spaghetti and aside this, they also go into Bags. Dangote Sack is a subsidiary of Dangote Flour that supply sacks to Obajana and Dangote Cement, Dangote Sugar including Dangote Flour. Even that market is big enough to diversify the company and today they have a success story.
A company that has just only 5 billion ordinary shares, but they have projected and believe they will make up to N10 billion profits after tax. The highest ever made by any flour mills company in this country. When you break it down to the earnings, you are talking of earnings of N2.00 per share. Then the questions you ask the investor, what do you want? This company even gives final and interim dividend of N0.50 for the year 2008 and part of 2009.
Even if you take a simple arithmetic of PE ratio at 10 times N2.00 that is N20.00 and you can see the investor that have done this speculation and hold to this stock at least this stock would stabilise around N15 to N20, and they have nothing to regret. Rather this is the stock that in the very near future we will see it as the best in flour mills industry.
Take the other banks, Oceanic, was trading at N1.10today is over N2.34 and what does that mean?. This stock already gained more than 100 per cent and there is still more room today. Check Afribank which is almost at par, today we are talking of over N3.50.
So the investor should identify those companies and those banks that have the potential and they should go for those now.
Then in just last year N200,000 cannot even buy you 10,000 units of Oceanic, today with N200,000 you can afford 200,000 units to your name.
So we are appealing to the investors to identify those kinds of companies, and invest heavily because there is all hope for recovery. Recovery in terms of bad debts and recovery in terms of cutting costs and all these would add value of these companies and that would translate into a quality balance sheet.
It would be recalled that the market from January 2009 to 1 December 2009, the entire All Share Index lost approximately 34 per cent. What this means is that those stocks that have lost 34 per cent in their price have also moved along with the trend of the market. But don’t forget some of the stocks have performed worse below the market. Over 50 per cent of the stocks have performed worse than the market. Today we want investors to look at these companies. We have some companies that have lost as much as 90 per cent or 80 per cent. If you check a stock like Equity Assurance, it lost almost 90 per cent. When you look at a stock like Fin Bank, Union Bank, Oceanic Bank, Intercontinental Bank, Eterna Oil, Daar Communications, MTI, Law Union, all these lost more than 80 per cent.
When the market lost only 34 per cent, they lost more than twice of the loss of the market. Similarly, some other stocks like Afribank, Unity Bank, International Energy, even Mobil and other stocks like Chams, Livestock, Union Homes, Crusader Insurance all lost above 70 per cent. That is still more than twice the loss of the market.
What we are advising the investors to do is that they should look at those stocks that have lost severely more than what the market lost and find out, the common denominators for those stocks. One thing that is common to most of the stocks that have lost is except maybe for the oil company, that majority of them they have large chunk of issued share capital. And because they have large chunk of issued share capital most of the investors were just selling more than what the market can take at any given time, and these stocks have to go down.
The same thing, one of the characteristics of these stocks have to do with most of those banks that were examined by CBN and the NDIC, qualified as the eight banks that the CBN had taken over.
Because of the size and because of the utterance of the regulatory authority, it brought panic to the investors and a lot of them were selling their stocks without looking at the repercussion.
We now advise the investor to identify these stocks that were severely lost. Not because they were not performing but they do so just out of sheer panic and invest heavily.
Today there is no doubt , anybody that invested in Dangote Flour Mills which was a s low as N4.71 around November, December today is over N14 and what does that mean?. It shows that the investor that have looked at this stock and invested have nothing to regret. Because the investor must have seen that this is a company that is well diversified.
Today we are talking of Dangote Flour Lagos, Dangote Flour Ilorin, Dangote Flour Kano and Dangote Flour Calabar, and they all not only rely on the Flour, they go into Macaroni and Spaghetti and aside this, they also go into Bags. Dangote Sack is a subsidiary of Dangote Flour that supply sacks to Obajana and Dangote Cement, Dangote Sugar including Dangote Flour. Even that market is big enough to diversify the company and today they have a success story.
A company that has just only 5 billion ordinary shares, but they have projected and believe they will make up to N10 billion profits after tax. The highest ever made by any flour mills company in this country. When you break it down to the earnings, you are talking of earnings of N2.00 per share. Then the questions you ask the investor, what do you want? This company even gives final and interim dividend of N0.50 for the year 2008 and part of 2009.
Even if you take a simple arithmetic of PE ratio at 10 times N2.00 that is N20.00 and you can see the investor that have done this speculation and hold to this stock at least this stock would stabilise around N15 to N20, and they have nothing to regret. Rather this is the stock that in the very near future we will see it as the best in flour mills industry.
Take the other banks, Oceanic, was trading at N1.10today is over N2.34 and what does that mean?. This stock already gained more than 100 per cent and there is still more room today. Check Afribank which is almost at par, today we are talking of over N3.50.
So the investor should identify those companies and those banks that have the potential and they should go for those now.
Then in just last year N200,000 cannot even buy you 10,000 units of Oceanic, today with N200,000 you can afford 200,000 units to your name.
So we are appealing to the investors to identify those kinds of companies, and invest heavily because there is all hope for recovery. Recovery in terms of bad debts and recovery in terms of cutting costs and all these would add value of these companies and that would translate into a quality balance sheet.
